Letter to Shareholders
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1
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Portfolio of Investments
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2
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Statement of Assets and Liabilities
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3
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Statement of Operations
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3
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Statements of Changes in Net Assets
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4
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Financial Highlights
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4
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Notes to Financial Statements
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5
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Report of Independent Registered Public Accounting Firm
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9
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Other Information
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10
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Trustees and Officers
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14
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SECURITY ALLOCATION AS A PERCENTAGE OF NET ASSETS AS OF 9/30/12
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Fannie Mae
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25.0%
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Federal Farm Credit Bank
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7.0%
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Federal Home Loan Bank
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30.7%
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Freddie Mac
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25.7%
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U.S. Treasury Bills
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7.9%
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Repurchase Agreement and Other
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3.7%
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Par Value
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Value (Note 1)
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U.S. GOVERNMENT AND AGENCY OBLIGATIONS - 96.3%
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||
Fannie Mae - 25.0%
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||
0.12%, 10/3/12 (A)
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$400,000
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$ 399,998
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0.5%, 10/30/12
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800,000
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800,227
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0.14%, 11/7/12 (A)
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250,000
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249,955
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0.12%, 11/14/12 (A)
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650,000
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649,906
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4.75%, 11/19/12
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500,000
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503,018
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0.01%, 11/28/12 (A)
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200,000
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199,958
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0.13%, 12/7/12 (A)
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500,000
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499,874
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0.14%, 12/12/12 (A)
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400,000
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399,888
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0.13%, 12/19/12 (A)
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200,000
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199,943
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0.375%, 12/28/12
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550,000
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550,293
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4,453,060
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||
Federal Farm Credit Bank - 7.0%
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0.19%, 10/1/12 (A)
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400,000
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400,000
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4.5%, 10/17/12
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300,000
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300,568
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1.875%, 12/7/12
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550,000
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551,737
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1,252,305
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Federal Home Loan Bank - 30.7%
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0.13%, 10/2/12 (A)
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250,000
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250,000
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0.13%, 10/5/12 (A)
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300,000
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299,995
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4.625%, 10/10/12
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110,000
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110,119
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0.13%, 10/10/12 (A)
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450,000
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449,986
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0.16%, 10/12/12 (A)
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300,000
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299,988
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0.12%, 10/17/12 (A)
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250,000
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249,987
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0.13%, 10/24/12 (A)
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300,000
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299,975
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0.23%, 10/25/12
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200,000
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200,006
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0.15%, 10/26/12 (A)
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100,000
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99,990
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0.14%, 10/30/12 (A)
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500,000
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499,944
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0.14%, 11/2/12 (A)
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400,000
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399,951
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0.14%, 11/7/12 (A)
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500,000
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499,928
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0.13%, 11/9/12 (A)
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250,000
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249,965
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0.12%, 11/16/12 (A)
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200,000
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199,969
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1.625%, 11/21/12
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400,000
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400,812
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0.2%, 11/26/12
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555,000
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555,032
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0.14%, 12/5/12 (A)
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200,000
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199,948
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0.2%, 12/6/12
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200,000
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200,013
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5,465,608
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Par Value
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Value (Note 1)
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Freddie Mac - 25.7%
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0.11%, 10/9/12 (A)
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$300,000
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$ 299,993
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0.12%, 11/14/12 (A)
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100,000
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99,985
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0.13%, 10/16/12 (A)
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100,000
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99,994
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0.15%, 10/22/12 (A)
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480,000
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479,959
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4.625%, 10/25/12
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450,000
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451,324
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0.14%, 11/19/12 (A)
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500,000
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499,905
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0.515%, 11/26/12
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500,000
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500,272
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0.375%, 11/30/12
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950,000
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950,345
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4.125%, 12/21/12
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400,000
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403,489
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0.13%, 12/24/12 (A)
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250,000
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249,921
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0.91%, 12/26/12
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550,000
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550,990
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4,586,177
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U.S. Treasury Bills - 7.9%
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1.375%, 10/15/12
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100,000
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100,049
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0.1%, 10/18/12 (A)
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100,000
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99,995
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3.875%, 10/31/12
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600,000
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601,844
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4%, 11/15/12
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600,000
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602,821
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1,404,709
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Total U.S. Government and Agency Obligations (Cost $17,161,859)
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17,161,859
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Repurchase Agreement - 3.5%
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With U.S. Bank National Association issued 9/28/12 at 0.01%, due 10/1/12, collateralized by $174,261 in Fannie Mae Pool #254725 due 5/1/33 and $457,712 Ginnie Mae Series GNR 2004-19 due 3/20/34. Proceeds at maturity are $619,584 (Cost $619,584)
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619,584
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TOTAL INVESTMENTS - 99.8% (Cost $17,781,443)*
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17,781,443
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NET OTHER ASSETS AND LIABILITIES - 0.2%
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42,664
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NET ASSETS - 100.0%
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$17,824,107
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ASSETS
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Investment, at value (Notes 1 and 2)
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Total government agency obligations
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$17,161,859
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Repurchase agreement
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619,584
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Total investments (cost $17,781,443)
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17,781,443
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Capital shares sold
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399
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Interest receivable
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62,625
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Total assets
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17,844,467
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LIABILITIES
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Payables
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Capital shares redeemed
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17,079
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Investment advisory fees
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3,666
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Service agreement fees
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6,720
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Waived fees
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(7,105)
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Total liabilities
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20,360
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NET ASSETS
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$17,824,107
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Net assets consists of:
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Paid in capital
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17,824,123
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Accumulated net realized losses
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(16)
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Net Assets
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$17,824,107
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CAPITAL SHARES OUTSTANDING
An unlimited number of capital shares, without par value, are authorized (Note 5)
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$17,824,207
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NET ASSETS VALUE PER SHARE
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$1.00
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INVESTMENT INCOME (Note 1)
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Interest income
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$ 13,448
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EXPENSES (Notes 3, 4 and 6)
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Investment advisory fees
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94,048
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Service agreement fees
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73,358
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Line of credit fees
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250
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Expenses waived
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(154,208)
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Total expenses
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13,448
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NET INVESTMENT INCOME
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–
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NET REALIZED GAIN/LOSS ON INVESTMENTS
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–
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TOTAL INCREASE/DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
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$ –
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Year Ended September 30,
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2012
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2011
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INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
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Net investment income
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$ -
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$ -
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Net realized gain (loss) on investments
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-
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-
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Total increase (decrease) in net assets resulting from operations
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-
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-
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DISTRIBUTION TO SHAREHOLDERS
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From net investment income
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-
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-
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From net capital gains
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-
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-
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Total distributions
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-
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-
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CAPITAL SHARE TRANSACTIONS (Note 5)
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(2,277,158)
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(2,092,551)
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TOTAL DECREASE IN NET ASSETS
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(2,277,158)
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(2,092,551)
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NET ASSETS
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Beginning of period
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$20,101,265
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$22,193,816
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End of period
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$17,824,107
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$20,101,265
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Year Ended September 30,
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|||||
2012
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2011
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2010
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2009
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2008
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Net asset value, beginning of period
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$1.00
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$1.00
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$1.00
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$1.00
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$1.00
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Net investment income (loss)
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-
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-
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-
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-1
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0.03
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Less distributions from net investment income
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-
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-
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-
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-1
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(0.03)
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Net asset value, end of period
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$1.00
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$1.00
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$1.00
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$1.00
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$1.00
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Total return (%)
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-
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-
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-
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0.43
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2.73
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Ratios and supplemental data
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|||||
Net assets, end of period (thousands)
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$17,824
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$20,101
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$22,194
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$25,817
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$30,975
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Ratio of expenses to average net assets before fee waiver (%)
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0.89
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0.89
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0.90
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0.89
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0.88
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Ratio of expenses to average net assets after fee waiver2 (%)
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0.07
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0.11
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0.14
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0.45
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0.63
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Ratio of net investment income to average net assets before fee waiver (%)
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(0.82)
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(0.79)
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(0.76)
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0.01
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2.47
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Ratio of net investment income to average net assets after fee waiver2 (%)
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-
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-
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-
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0.45
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2.72
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Level 1 - unadjusted quoted prices in active markets for identical securities
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Level 2 - other significant observable inputs (including quoted prices for similar investments, interest rate volatilities, prepayment speeds, credit risk, benchmark yields, transactions, bids, offers, new issues, spreads and other relationships observed in the markets among comparable securities, underlying equity of the issuer; and proprietary pricing models such as yield measures calculated using factors such as cash flows, financial or collateral performance and other reference data, etc.)
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Level 3 - significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
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Fund
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Level 1
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Level 2
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Level 3
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Value at
9/30/12
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Government
|
||||
U.S. Government and Agency Obligations
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$ --
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$17,161,859
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$ --
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$17,161,859
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Repurchase Agreement
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--
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619,584
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--
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619,584
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Total
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$ --
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$17,781,443
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$ --
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$17,781,443
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Please see the Portfolio of Investments for a listing of all securities within the U.S. Government and Agency Obligations category.
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Year Ended September 30,
|
||
2012
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2011
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|
Shares sold
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$ 4,743,202
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$ 8,057,261
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Shares issued in reinvestment of dividends
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–
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–
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Total shares issued
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4,743,202
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8,057,261
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Shares redeemed
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7,020,360
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10,149,812
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Net decrease
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$ (2,277,158)
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$ (2,092,551)
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Based on Actual Total Return1
|
|||||
Actual Total Return2
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Beginning
Account Value
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Ending Account Value
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Annualized
Expense Ratio3
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Expenses Paid
During the Period3
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Government Money Market
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0.00%
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$1,000.00
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$1,000.00
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0.07%
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$0.36
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1For the six-months ended September 30, 2012.
2Assumes reinvestment of all dividends and capital gains distributions, if any, at net asset value.
3Expenses (net of voluntary waiver) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366.
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Based on Hypothetical Total Return1
|
|||||
Hypothetical Annualized
Total Return
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Beginning
Account Value
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Ending Account Value
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Annualized
Expense Ratio2
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Expenses Paid
During the Period2
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|
Government Money Market
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5.00%
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$1,000.00
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$1,025.26
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0.07%
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$0.36
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1For the six-months ended September 30, 2012.
2Expenses (net of voluntary waiver) are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, then divided by 366.
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Name and
Year of Birth
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Position(s)
and Length of Time Served
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Principal Occupation(s)
During Past Five Years
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Other Directorships/Trusteeships
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Katherine L. Frank1
1960
|
President, 1996 -
Present, and Trustee, 2001- Present
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Madison Investment Holdings, Inc. ("MIH") (affiliated investment advisory firm of Madison), Executive Director and Chief Operating Officer, 2010 - Present; Managing Director and Vice President, 1986 - 2010; Madison Asset Management, LLC ("MAM") (affiliated investment advisory firm of Madison), Executive Director and Chief Operating Officer, 2010 - Present; Vice President, 2004 - 2010; Madison Investment Advisors, LLC ("Madison"), Executive Director and Chief Operating Officer, 2010 - Present; President, 1996 - 2010; Madison Mosaic Funds (12 funds, including the Trust), President, 1996 - Present; Madison Strategic Sector Premium Fund (closed end fund), President, 2005 - Present; Madison/Claymore Covered Call and Equity Strategy Fund (closed end fund), Vice President, 2005 -
Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16) (mutual funds), President, 2009 - Present
|
Madison Mosaic Funds (all but Equity Trust), 2001 - Present; Madison; Strategic Sector Premium Fund, 2005 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), 2009 - Present
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Frank E. Burgess
1942
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Trustee and Vice President, 1996 - Present
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MIH, Founder, Executive Director and President, 2010 - President; Managing Director and President, 1973 - 2010; MAM, Executive Director and President, 2010 - Present; President, 2004 - 2010; Madison, Executive Director and President, 2010 - Present ; Madison Mosaic Funds (12 funds, including the Trust), Vice President, 1996 - Present; Madison Strategic Sector Premium Fund, Vice President, 2005 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present
|
Madison Mosaic Funds (12), 1996 - Present; Madison; Strategic Sector Premium Fund and Madison/Claymore Covered Call & Equity Strategy Fund, 2005 - Present; Capitol Bank of Madison, WI, 1995 - Present; American Riviera Bank of Santa Barbara, CA, 2006 - Present
|
Jay R. Sekelsky
1959
|
Vice President,
1996 - Present
|
MIH, Executive Director and Chief Investment Officer, 2010 - Present; Managing Director and Vice President, 1990 - 2010; MAM, Executive Director and Chief Investment Officer, 2010 -
Present; Madison, Executive Director and Chief Investment Officer, 2010 - Present; Vice President, 1996 - 2010; Madison Mosaic Funds (12 funds, including the Trust), Vice President, 1996 - Present; Madison Strategic Sector Premium Fund and Madison/Claymore Covered Call and Equity Strategy Fund, Vice President, 2005 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present
|
N/A
|
Paul Lefurgey
1964
|
Vice President,
2009 - Present
|
MIH, Managing Director, Head of Fixed Income Investments, 2005 - Present; MAM and Madison, Managing Director, Head of Fixed Income Investments, 2010 - Present; MEMBERS Capital Advisors, Inc. ("MCA") (investment advisory firm), Madison, WI, Vice President 2003 - 2005; Madison Mosaic Funds (12 funds, including the Trust), Vice President, 2009 - Present; Madison Strategic Sector Premium Fund, Vice President, 2010 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), Vice President, 2009 - Present
|
N/A
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Name and
Year of Birth
|
Position(s)
and Length of Time Served
|
Principal Occupation(s)
During Past Five Years
|
Other Directorships/Trusteeships
|
Greg D. Hoppe
1969
|
Treasurer,
2009 - Present
Chief Financial
Officer, 1999 -
2009
|
MIH and Madison, Vice President, 1999 - Present; MAM, Vice President, 2009 - Present; Madison Mosaic Funds (12 funds, including the Trust), Treasurer, 2009 - Present; Chief Financial Officer, 1999 - 2009; Madison Strategic Sector Premium Fund, Treasurer, 2009 - Present; Chief Financial Officer, 2005 - 2009; Madison/Claymore Covered Call and Equity Strategy Fund, Vice President, 2008 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), Treasurer, 2009 - Present
|
N/A
|
Holly S. Baggot
1960
|
Secretary and Assistant Treasurer, 2009 - Present
|
MIH and Madison, Vice President, 2010 - Present; MAM, Vice President, 2009 - Present; Madison Mosaic Funds (12 funds, including the Trust), Secretary and Assistant Treasurer, 2009 -
Present; Madison Strategic Sector Premium Fund, Secretary and Assistant Treasurer, 2010 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), Assistant Treasurer,
2009 - Present; Secretary, 1999 - Present; Treasurer, 2008 - 2009; Assistant Treasurer, 1997 - 2007; MCA, Director-Mutual Funds, 2008 - 2009; Director-Mutual Fund Operations,
2006 - 2008; Operations Officer-Mutual Funds, 2005 - 2006; Senior Manager-Product & Fund Operations, 2001 - 2005
|
N/A
|
W. Richard Mason
1960
|
Chief Compliance Officer, 1992 - Present
Corporate Counsel and Assistant Secretary, 2009 - Present
General Counsel and Secretary, 1992 - 2009
|
MIH, MAM, Madison, and Madison Scottsdale, LC (an affiliated investment advisory firm of Madison), Chief Compliance Officer and Corporate Counsel, 2009 - Present; General Counsel and Chief Compliance Officer, 1996 - 2009; Mosaic Funds Distributor, LLC (an affiliated brokerage firm of Madison), Principal, 1998 - Present; Concord Asset Management, LLC ("Concord") (an affiliated investment advisory firm of Madison), General Counsel, 1996 - 2009; NorthRoad Capital Management LLC ("NorthRoad") (an affiliated investment advisory firm of Madison), Chief Compliance Officer and Corporate Counsel, 2011 - Present; Madison Mosaic Funds (12 funds, including the Trust), Chief Compliance Officer, Corporate Counsel, and Assistant Secretary, 2009 - Present; Secretary, General Counsel, Chief Compliance Officer, 1992 - 2009; Madison Strategic Sector Premium Fund, Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2009 - Present; Secretary, General Counsel and Chief Compliance Officer, 2005 - 2009; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), Chief Compliance Officer, Corporate Counsel and Assistant Secretary, 2009 - Present
|
N/A
|
Pamela M. Krill
1966
|
General Counsel,
Chief Legal Officer
and Assistant Secretary,
2009 - Present
|
MIH, MAM, Madison, Madison Scottsdale, LC, Mosaic Funds Distributor, and Concord, General Counsel and Chief Legal Officer, 2009 - Present; NorthRoad, General Counsel & Chief Legal Officer, 2011 - Present; Madison Mosaic Funds (12 funds, including the Trust), General Counsel, Chief Legal Officer and Assistant Secretary, 2009 - Present; Madison Strategic Sector Premium Fund, General Counsel, Chief Legal Officer and Assistant Secretary, 2010 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), General Counsel, Chief Legal Officer and Assistant Secretary, 2009 -
Present; CUNA Mutual Insurance Society (insurance company with affiliated investment advisory, brokerage and mutual fund operations), Madison, WI, Managing Associate General Counsel-Securities & Investments, 2007 - 2009; Godfrey & Kahn, S.C. (law firm), Madison and Milwaukee, WI, Shareholder, Securities Practice Group, 1994-2007
|
N/A
|
Name and
Year of Birth
|
Position(s)
and Length of Time Served1
|
Principal Occupation(s)
During Past Five Years
|
Portfolios
Overseen in
Fund Complex2
|
Other Directorships/Trusteeships
|
Philip E. Blake
1944
|
Trustee, 2001 - Present
|
Retired investor; Lee Enterprises, Inc (news and advertising publisher), Madison, WI, Vice President, 1998 - 2001; Madison Newspapers, Inc., Madison, WI, President and Chief Executive Officer, 1993 - 2000
|
44
|
Edgewood College, 2003 - Present; Chairman of the Board, 2010 - 2012; Nerites Corporation (technology company), 2004 - Present; Madison Mosaic Funds (12 funds, including the Trust), 2001 -
Present; Madison Strategic Sector Premium Fund, 2005 - Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), 2009 - Present
|
James R Imhoff, Jr.
1944
|
Trustee, 1996 - Present
|
First Weber Group (real estate brokers), Madison, WI, Chief Executive Officer, 1996 -
Present
|
44
|
Park Bank, 1978 - Present; Madison Mosaic Funds (12 funds, including the Trust), 1996 - Present; Madison Strategic Sector Premium Fund, 2005 -
Present; Madison/Claymore Covered Call and Equity Strategy Fund, 2005- Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), 2009 - Present
|
Lorence D. Wheeler
1938
|
Trustee, 1996 - Present
|
Retired investor; Credit Union Benefits Services, Inc. (a provider of retirement plans and related services for credit union employees nationwide), Madison, WI, President, 1986 - 1997
|
44
|
Grand Mountain Bank FSB and Grand Mountain Bancshares, Inc. 2003 - Present; Madison Mosaic Funds (12 funds, including the Trust), 1996 - Present; Madison Strategic Sector Premium Fund, 2005 - Present; Madison/Claymore Covered Call and Equity Strategy Fund, 2005- Present; MEMBERS Mutual Funds (13) and Ultra Series Fund (16), 2009 - Present
|
The following code of ethics is designed to address the disclosure requirements of Item 2 of Form N-CSR,1 which implements Section 406 of the Sarbanes-Oxley Act of 2002 concerning disclosure of a code of ethics for principal executive and senior financial officers.
|
·
|
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
|
·
|
full, fair, accurate, timely and understandable disclosure in reports and documents that a registrant files with, or submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by the Company;
|
·
|
compliance with applicable laws and governmental rules and regulations;
|
·
|
the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and
|
·
|
accountability for adherence to the Code.
|
1 - Item 2 of Form N-CSR requires a registered management investment company to disclose annually whether, as of the end of the period covered by the report, it has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these officers are employed by the registrant or a third party. If the registrant has not adopted such a code of ethics, it must explain why it has not done so. The registrant must also: (1) file with the SEC a copy of the code as an exhibit to its annual report; (2) post the text of the code on its Internet website and disclose, in its most recent report on Form N-CSR, its Internet address and the fact that it has posted the code on its Internet website; or (3) undertake in its most recent report on Form N-CSR to provide to any person without charge, upon request, a copy of the code and explain the manner in which such request may be made. Disclosure is also required of amendments to, or waivers (including implicit waivers) from, a provision of the code in the registrant’s annual report on Form N-CSR or on its website. If the registrant intends to satisfy the requirement to disclose amendments and waivers by posting such information on its website, it will be required to disclose its Internet address and this intention.
|
·
|
not use his personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Company whereby the Covered Officer would benefit personally to the detriment of the Company;
|
·
|
not cause the Company to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit the Company;
|
·
|
not use material non-public knowledge of portfolio transactions made or contemplated for the Company to trade personally or cause others to trade personally in contemplation of the market effect of such transactions (recognizing that such matters are addressed in the Company’s and the Company’s investment manager’s general Code of Ethics and Rules to Prevent Insider Trading); and
|
·
|
not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith.
|
·
|
service as a director on the board of any public or private company;
|
·
|
the receipt of any gifts provided the value of such gifts do not exceed $100 per person per year, but not including the occasional meal, ticket to a sporting event or theater, or comparable entertainment from any company with which the Company or its affiliates has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety;
|
·
|
any ownership interest in, or any consulting or employment relationship with, any of the Company’s service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof;
|
·
|
a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Company for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership.
|
·
|
Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the Company;
|
·
|
each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Company to others, whether within or outside the Company, including to the Company’s directors and auditors, and to governmental regulators and self-regulatory organizations;
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each Covered Officer should, to the extent appropriate within his area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and
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it is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.
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upon adoption of the Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board, or orally confirm such receipt in person before the Board (as reflected in the Company’s minutes) that he has received, read, and understands the Code;
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annually thereafter affirm to the Board that he has complied with the requirements of the Code; and
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notify the General Counsel promptly if he knows of any violation of this Code. Failure to do so is itself a violation of this Code. The General Counsel shall report any such violations to the Audit Committee of the Company.
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the General Counsel will take all appropriate action to investigate any potential violations reported to him;
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if, after such investigation, the General Counsel believes that no violation has occurred, the General Counsel is not required to take any further action;
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any matter that the General Counsel believes is a violation will be reported to the Committee;
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if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the investment adviser or its board; or a recommendation to end the Covered Officer’s association with the Funds;
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the Committee will be responsible for granting waivers, as appropriate; and
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any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.
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